Washington Post reports that Retired Adm. John Poindexter will resign his position at the Pentagon after the uproar over a research project he was overseeing that included a kind of futures market on political violence in the Middle East. Poindexter to Leave Pentagon Research Job

John M. Poindexter, the retired rear admiral involved in the Pentagon's ill-fated plan to launch an online futures market for betting on Middle Eastern developments, will be leaving his job with a Defense Department research agency, a senior defense official said yesterday.

The departure had been demanded by lawmakers outraged over the notion that the Pentagon should set up a system enabling people to profit from predictions of terrorist attacks and other events. Poindexter, who has not spoken publicly about the initiative since it sparked a political firestorm Monday, has headed the office at the Defense Advanced Research Projects Agency (DARPA) responsible for developing the trading program.

Since joining DARPA in January 2002, Poindexter also has been embroiled in controversy over a computerized surveillance project to collect information about potential terrorist threats by scouring financial, travel, medical and other databases. After critics blasted the project for potential invasions of privacy, lawmakers and the Defense Department placed limits on it.

The official said that Poindexter had not been asked to resign, but added that Defense Secretary Donald H. Rumsfeld and senior aides had agreed the onetime national security adviser to President Ronald Reagan -- and a central figure then in the Iran-contra scandal -- had become too much of a political lightning rod. Poindexter is "working through the details" of his resignation and "expects to offer" it within a few weeks, the official said.

"He realizes that it's become difficult for projects he's involved in to get a dispassionate hearing," the official said.

While Poindexter had supervisory responsibility for the futures project, others at the Defense Department also played important roles in shaping or approving it. But there was no word yesterday on their fate -- or the future of the Information Awareness Office that Poindexter has headed. News of Poindexter's resignation was first reported in yesterday's Wall Street Journal.

"The problem is more than the fact that Admiral Poindexter was put in charge of these projects," Sen. Patrick J. Leahy (D-Vt.) said yesterday in a statement suggesting lawmakers may not be content to let the matter rest. "The problem is that these projects were just fine with the administration until the public found out about them."

But several involved with the futures trading plan defended it vigorously in interviews, saying the project's purpose has been distorted by critics and abandoned too quickly by top Pentagon officials unprepared to explain its value and nature. Sponsors saw it as a method of collecting information and insights useful to the Defense Department

The project, known as the Policy Analysis Market, was conceived by Michael Foster, a math and computer science specialist who joined DARPA in 2000 as a program manager, on temporary assignment from the National Science Foundation, according to several people familiar with the project's history. One of his models for creating a market that could help the Pentagon predict events was the political futures market at the University of Iowa, which has proven better than pollsters and pundits in predicting the outcome of presidential elections.

"DARPA is a relatively entrepreneurial organization," said Robin Hanson, an assistant professor of economics at George Mason University, whose work on futures markets also helped inspire Foster. "They give program managers a lot of discretion and a lot of ability to create new concepts, and then reward them heavily based on how they do."

According to a chronology prepared by the Pentagon, the go-ahead for the project came in the spring of 2001 from an unidentified official in the Defense Research and Engineering office. After inviting proposals in May 2001, DARPA awarded initial design contracts to two small firms -- Neoteric Technologies of Huntsville, Ala., and Net Exchange of San Diego, a 10-person business started in the early 1990s by economist John Ledyard, Hanson's thesis adviser at the California Institute of Technology.

While Neoteric took a comparatively conservative approach, Net Exchange decided on a more ambitious one, both in terms of technology and scope. Its original plan was to create a market that would try to anticipate major events not just in the Middle East but Southwest and Central Asia as well. The market also would be limited to intelligence analysts and others in the U.S. government.

But the idea of setting up an internal market ran into legal prohibitions against moving money among agencies funded under separate congressional appropriations. So Net Exchange devised a public market. It also narrowed the scope to eight countries in the Middle East.

Under the plan, much of the trading was to have centered on futures contracts based on general indices regarding the economic health, civil stability and military posture of these countries. To build the indices, Net Exchange contracted with the Economist Intelligence Unit, which specializes in country analysis.

Some "specific event" contracts also were to be written, covering the possibility of a terrorist attack, assassination or coup. But these contracts, which stirred the political outcry this week, were never meant to be the market's focus, said Charles Polk, Net Exchange's president.

"It was never billed as a market in terrorism," he said. "It was to be a market in the future of the Middle East."

In late 2002, Poindexter approved field testing of the plan, which envisioned registering traders today and starting trades on Oct. 1. Among those briefed on the plan as it developed were officials not only in DARPA but in intelligence agencies and the Securities and Exchange Commission, Polk said. But neither Rumsfeld nor his senior staff knew of the program before this week, according to a senior defense official, who said such small research programs do not normally receive such high-level attention.

Polk said he had heard no expressions of moral outrage in any of the briefings, although he did anticipate possible concerns being raised about some of the planned trading once the market went public. He said the market would not have traded in any events that were not being widely speculated about in news stories, government meetings or policy seminars. He also dismissed the idea that terrorists could have profited from the market, noting its relatively small planned size.

In May, the program came to the attention of two Democratic senators -- Ron Wyden (Ore.) and Byron L. Dorgan (N.D.) -- who saw it listed in a report on the programs being run by Poindexter's office. The senators could not discern much from the report. But a tip they received last week directed them to the program's Web site, which showed as trading examples the possibility of betting on the assassination of Palestinian leader Yasser Arafat or the overthrow of Jordan's monarchy.

The senators called a news conference Monday to denounce the project as bizarre and morally repugnant, unleashing a torrent of similar criticism from other lawmakers and prompting Rumsfeld to cancel it. Hanson, reflecting on what went wrong, said one thing he would have done differently was post different examples on the Web site.

"They allowed the project to be distorted," he said of the effort's critics. "But it's still our fault for allowing them."